Co-operatives Amendment Bills: Department response to public comments; Legal opinion on National Consumer Commission response to Tribunal's report to Department

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Trade and Industry

21 August 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee heard a report back by the Department of Trade and Industry (dti) on submissions received during public hearings on the Co-operatives Amendment Bills. A Parliamentary Legal Advisor provided comments on two National Consumer Commission documents to the Committee.

The dti said that its responses were not to all matters raised at the public hearings but only touched on those that were regarded as fundamental. There had been many submissions around the terms “financial statements”, “social report” and “management report” and these would be defined in the Bill. The dti agreed that there be alignment between the Companies Act and Co-operatives Act. The financial statements would be a statement of the financial position of the co-operative. Interim or preliminary reports would not be a requirement for co-operatives. Co-operatives would be required to produce a social and management decision reports. The reason for their inclusion was that co-operatives were governed by seven principles which would be included in the preamble to the Bill. These reports would allow one to see if the co-operatives were adhering to the seven principles and whether co-operatives were conducting business in alignment with its stated vision, mission and goals. The Independent Regulatory Board for Auditors (IRBA), the SA Institute of Chartered Accountants (SAICA) and SA Institute of Professional Accountants (SAIPA) had been consulted in putting together the draft definitions.

The dti agreed to change the wording “Annual Accounting Report” to “Annual Report”. It agreed to define the term “audit” as per the
Auditing Professions Act (APA) definition but that the definition should include the social and management reports for co-operatives. It agreed to change the term “Audited Annual Accounting Report” to “Audit Report” and that the reporting framework would be developed by a task team and be part of the regulations so as to cover the social and management reports. The task team would include bodies such as IRBA, SAICA and SAIPA and be consistent with the International Standards on Review Engagements (ISRE) 2004. It agreed with the IRBA definition of “independent review” and that the review must include the social and management reports. On the term “independent reviewer”, they were in agreement with SAIPA and the phrasing of the Bill would cover registered auditors, professional accountants and accounting officers as was used in the Close Corporations Act. The wording of the “Independent Reviewer Annual Accounting Report” would be changed to “Independent Reviewed Report”. On the matter of the audit and independent reviewed report being tabled at an AGM for acceptance, the dti acknowledged that the AGM could not take a resolution on the audit or independent review but what the dti wanted was that the AGM consider and take decisions on the conduct of the business on the basis of these reports. Records would have to be kept for a period of five years and some documents, stipulated in the regulations, needed to be kept indefinitely. It would be mandatory for co-operatives to have indivisible reserves to protect against crises. Co-operatives would still have the right to create any other reserves they wish. The Bill would stipulate that the percentage reserves be in the constitution of the co-operative.

Nafcosa had submitted that minimum membership of a co-operative be raised from five to ten, but the dti felt that this would create constraints in a number of sectors. Five was reasonable and the number had to be maintained as a minimum. Submissions had been received that the minimum number of primary co-operatives necessary to form secondary co-operatives be raised to five from two. The dti felt this was not viable and co-operatives might resort to artificial splitting to make up the numbers and therefore would maintain it at two. The dti supported a recommendation that apex co-operatives had to comprise of at least five secondary co-operatives and have a presence in at least five provinces. Due to time constraints the Department could not complete its presentation and was adjourned to the next Committee meeting.

Members said there should be a threshold level for the indivisible reserve in percentage terms. Members asked what the seven principles were and what the differences between the audited report and the annual report were. Members felt that the indivisible reserve should have more flexibility. Members asked for clarification of the terms auditor and independent reviewer. Members said they wanted more information on doctor’s co-operatives and that Kenya had one apex co-operative, would this not be better than having many?


A parliamentary legal advisor said that the two Bills had been introduced into Parliament. The Committee had to decide and indicate to the National Assembly whether it would deal with the two Bills separately or combine the Bills into one Bill, which would require a redraft. The Chairperson said the Committee needed to make a decision at its next meeting.

Legal opinion on National Consumer Commission (NCC) documents
The parliamentary legal advisor looked at a NCC document dated 15 December 2011 and a three-page document of NCC responses to questions the Committee had posed to it recently. She had looked at compliance notices and interpretation issues and its impact on small business. The three-page document had not answered all the questions the Committee had asked of the NCC. The dated document covered issues raised by the NCC against the Tribunal. These were:
  the Tribunal did not give reasons with its judgements or guidance as to what the NCC should have done;
  the NCC had insufficient funds to pursue a review of Tribunal judgements;
  the Tribunal had acted unlawfully in writing a report on the NCC to the dti;
  the Tribunal did not indicate the correct investigative process to be followed by the NCC;
  the Tribunal was inconsistent in its judgements.
  that there were anomalies in the Consumer Protection Act that needed to be corrected.

The Committee passed a resolution that it:
• express its serious concern at the form and content of the December 2011 document of the NCC

• concern at the quality of the NCC reports and legal assessments
• reiterate its interest in preserving the integrity of the institution of the NCC
• request reports from the NCC on:
- the status of the cases before it
- the decisions taken to date

- the judgements taken against it by the tribunal
- request the financial statements of the NCC
- request a report on the personnel of the NCC (including staff vacancies)
- request the dti to fix the anomalies in the Consumer Protection Act.
The proposal was adopted.
 
Members said the Committee wanted the reports, but that the NCC reported to the dti. What had the dti done with the Tribunal report it had requested. Members asked who the new head of the Commission would be.


Meeting report

 

Co-operatives Amendment Bills: Department response to public comments
Mr Jeffrey Ndumo, dti Chief Director of Co-operatives, said the dti responses were not to all matters raised at the public hearings but only touched on those that were regarded as fundamental. He said there had been many submissions around the terms financial statements, social reports and management reports and said that these would be defined in the Bill. The dti agreed that there be alignment between the Companies Act and Co-operatives Act. He said the financial statements would be a statement of the financial position of the co-operative comprising a balance sheet, income statement, change in membership shares, cash flow statement and explanatory notes. Companies had equity shares while co-operatives had membership shares. Interim or preliminary reports would not be a requirement for co-operatives. The Companies Act did not have a social or management decision report whereas co-operatives would be required to produce these reports. The reason for their inclusion was that co-operatives were governed by seven principles which would be included in the preamble to the Bill. These reports would allow one to see if the co-operatives were adhering to the seven principles and whether co-operatives were conducting business in alignment with its stated vision, mission and goals. The Independent Regulatory Board for Auditors (IRBA), the SA Institute of Chartered Accountants (SAICA) and SA Institute of Professional Accountants (SAIPA) had been consulted in putting together the draft definitions.

It agreed to change the wording “Annual Accounting Report” to “Annual Report”. It agreed to define the term “audit” as per the
Auditing Professions Act (APA) definition but that the definition should include the social and management reports. It agreed to change the term “Audited Annual Accounting Report” to “Audit Report” and that the reporting framework would be developed by a task team and be part of the regulations so as to cover the social and management reports. The task team would include bodies such as IRBA, SAICA and SAIPA and be consistent with the International Standards on Review Engagements (ISRE) 2004. It agreed with the IRBA definition of “independent review” and that the review must include the social and management reports. On the term “independent reviewer”, he said that they were in agreement with SAIPA and the phrasing of the Bill would cover registered auditors, professional accountants and accounting officers as was used in the Close Corporations Act. The wording of the “Independent Reviewer Annual Accounting Report” would be changed to “Independent Reviewed Report”. On the matter of the audit and independent reviewed report being tabled at an AGM for acceptance, he acknowledged that the AGM could not take a resolution on the audit or independent review but what the dti wanted was that the AGM consider and take decisions on the conduct of the business on the basis of these reports. He said under the Companies Act, records had to be kept for seven years and some indefinitely, for co-operatives it would be for a period of five years and some documents, stipulated in the regulations, needed to be kept indefinitely. He said there had been some confusion over the terms “reserves” and “reserve fund”. It would be mandatory for co-operatives to have indivisible reserves to protect against crises. Co-operatives would still have the right to create any other reserves they wish. The Bill would stipulate that the percentage reserves be in the constitution of the co-operative.

Nafcosa had submitted that minimum membership of a co-operative be raised from five to ten, but the dti felt that this would create constraints in a number of sectors such as hairdressers and lawyers. Five was reasonable and the number had to be maintained as a minimum. Submissions had been received that the minimum number of primary co-operatives necessary to form secondary co-operatives be raised to five from two. The dti felt this was not viable and co-operatives might resort to artificial splitting to make up the numbers and therefore would maintain it at two. Nothing prevented co-operatives being formed on the basis of women, youth or the disabled. It was acceptable as long as there was a common need. The dti supported a recommendation that apex co-operatives had to comprise of at least five secondary co-operatives and have a presence in at least five provinces.

Discussion
Ms S van der Merwe (ANC) said there should be a threshold level for the indivisible reserve in percentage terms.
 
Mr G Selau (ANC) asked what the seven principles were and what the differences between the audited report and the annual report were. He felt that the indivisible reserve should have more flexibility.

Mr X Mabasa (ANC) asked for clarification of the terms auditor and independent reviewer.


On the difference between an annual report and an audited report, Mr Ndumo replied that co-operatives were divided into three categories. Large co-operatives had to be audited, medium sized co-operatives had to get an annual review report which could be done by an independent reviewer such as an accountant, this was similar to the requirements for close corporations, small co-operatives needed an annual report which they could do themselves and micro co-operatives would be exempt from any requirements.

On the difference between an auditor and independent reviewer, he said that an auditor was as per the APA definition while an independent reviewer could be an accountant.

The seven principles were stated in the preamble to the bill.

On the matter of reserves, he said the Act talked about a Reserve Fund but the Amendment Bills would talk of Indivisible Reserves, the word “Funds” would be dropped as it had caused confusion. He said it was global practise for co-operatives to have reserves for times of crises but that the amount would not be prescribed


Ms van der Merwe said she wanted more information on doctor’s co-operatives and that Kenya had one apex co-operative, would this not be better than having many?

Mr Ndumo replied that Brazil had an instance of doctors coming together to form a co-operative to share services. They were licensed individually as doctors but shared services as a form of business practice.

Mr Lionel October, dti Director-General, said that secondary co-operatives in South Africa had been the most successful, KWV being a case in point. The mistake had been not to allow juristic persons to be part of a co-operative and these co-operatives had become private. Secondary co-operatives allowed for the mainstreaming of products from primary co-operatives.

Mr Ndumo replied that he strongly felt that apex co-operatives should not be limited to one as co-operatives historically had a tendency to split. He said the dti would like to see economies of scale and shared services from secondary co-operatives. Secondary co-operatives had to show that they comprised of primary co-operatives operational for at least a year.

Ms Charmaine van der Merwe, parliamentary legal advisor, said that the two Bills had been introduced into Parliament. The Committee had to decide and indicate to the National Assembly whether it would deal with the two Bills separately or combine the Bills into one Bill, which would require a redraft.

The Chairperson said the Committee needed to make a decision at its next meeting.


Legal opinion on National Consumer Commission (NCC) documents
Adv
Charmaine van der Merwe said she had worked with a NCC document dated 15 December 2011 and a three-page document of responses to questions the Committee had posed to it recently. She had looked at compliance notices and interpretation issues and its impact on small business. The three-page document had not answered all the questions the Committee had asked of it.

She said the dated NCC document had been difficult to read. In the matter between Nayyara Distribution Enterprises and Gloria Jeans Coffees, the National Consumer Tribunal (Tribunal) had criticised the Commission’s issuance of a compliance notice as it prevented the applicant from a potential claim to damages, had the matter been referred to the Tribunal.

On the matter of the Tribunal not giving reasons for their judgements, she said that reasons might be delayed and given later. If the NCC felt that the delay was unreasonable, they had a right to go to the Minister. In addition, reasons were given for the judgement, not for what the NCC should do. The National Credit Act and the Consumer Protection Act indicate what the Tribunal may do; neither Act says that the Tribunal provide guidelines on what the Commission should do.

The Commission claimed that it did not have the funds to take matters on review. Adv van der Merwe said that the Commission’s business plan should include for the possibility that matters would be taken on review.

Regarding the report of the Tribunal to the dti, the Commission said that the Tribunal acted unlawfully in writing up the report and submitting it to the dti. The Tribunal had said under oath that they had been requested by the dti to do the report. The Commission wanted the report set aside, but the report was not a decision it was only information.

In the case involving the City of Johannesburg, the Tribunal did not say what the correct process was, only that the Commission needed to follow the enforcement guidelines.

In the cases of MTN and Vodacom, the Commission said that the Tribunal was inconsistent in its judgements, but Adv van der Merwe said that each case was being judged on its own facts. Both had service providers which entered into contracts with consumers. Compliance notices were served on MTN and Vodacom, not the service providers. In the MTN case the Tribunal held MTN, the holding company, liable as it involved licensing issues; while in the case of Vodacom, this was not the case and therefore the service provider should have been held accountable and served a compliance notice. In both cases the Tribunal deemed that the interaction of the Commission with ICASA was not enough. It also felt that two legal principles were not adhered to: listening to both sides of the story and following procedural requirements. The Commission did not see the importance of following procedure, saying that it was a waste of time and a delaying tactic. Following procedure was important and not adhering to it could lead to a fine being imposed.

Adv van der Merwe agreed with the Commission that Section 71 of the Consumer Protection Act incorrectly referred to subsections 69(1) and (2), which did not exist. This needed to be remedied as soon as possible.

Lastly she touched on the Commission’s impact on small business. She had already mentioned the Nayyara case where the Commission’s wrong decision to issue a compliance notice meant that Nayyara could not claim damages had the case been referred to the Tribunal. In another case involving a small business, Hyginique, the owner was given the run around over the issuance of a compliance notice on it. The owner eventually threatened to take the Commission to court, at which time it was pointed out to him that he could seek redress at the Tribunal.

Ms S van der Merwe (ANC), proposed that the Committee:
• express its serious concern on the form and content of the December 2011 document of the NCC

• concern on the quality of the reports and legal assessments
• reiterate its interest in preserving the integrity of the institution of the NCC
• request reports from the NCC on:
- the status of the cases before it
- the decisions taken to date

- the judgements taken against it by the tribunal
- request the financial statements of the NCC
- request a report on the personnel of the NCC (including staff vacancies)
- request the dti to fix the anomalies in the Consumer Protection Act.

The proposal was adopted.
 
Mr B Radebe (ANC) said that the Committee wanted the reports, but that the NCC reported to the dti. He also wanted to know what the dti had done with the Tribunal report it had requested.

Mr Hill-Lewis asked who the new head of the Commission would be.

Mr October replied that it was the Minister’s decision and he had not given any instruction yet on the matter.

The meeting was adjourned.

Appendix

National Consumer Commission in the Spotlight

The Committee had resolved to request all outstanding documentation from the National Consumer Commission (NCC) on whether it has delivered on its service delivery mandate.

The Committee decided not to focus on the question of the NCC’s financial situation as a briefing on this was still outstanding. The Committee will assess the number of cases dealt with by the NCC, how many complaints it received and how it dealt with those complaints, how many were successful or unsuccessful and what actions were taken. The Committee will also seek clarity on whether the Consumer Act was complied with effectively.

This decision follows a meeting with the NCC that was set down for Friday. Head of the NCC Ms Mamodupi Mohlala-Mulaudzi was absent, as she had fallen ill. Chairperson of the Committee Ms Joanmarie Fubbs emphasised that previous meetings with Ms Mohlala-Mulaudzi had been cancelled at the last minute.
During deliberations several members of the Committee referred to the strained relations between the Department of Trade and Industry and the NCC and also between the NCC and the National Consumer Tribunal (NCT).

The NCC made a presentation to the Committee two weeks ago but had to return on Friday as various questions by members were still unanswered.

Last week Ms Mohlala-Mulaudzi rejected the findings of a damning report on her organisation by the NCT. She indicated that the NCC obtained an unqualified financial audit report from the Auditor-General and questioned the report’s motives and timing.

The Committee requested a final response in writing from the NCC. This will be made available to members and should be used in conjunction with the information that members already have in their possession. The Committee further agreed that the information will also be given to the parliamentary legal advisor, Adv Charmaine van der Merwe.

Ms Fubbs indicated that the Committee will request an analysis of all the documents from Adv van der Merwe before they deliberate on the issue this week.

by Rajaa Azzakani, Parliament News Reporter 20 August 2012


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